Bread Financial Holdings, Inc. Barclays 24th Annual Global Financial Services Conference

To the front. We're on live.

You're on. Okay, we'll get started.

Yes. Let's start with the update on the quarter. We obviously put out our performance metrics this morning that we came in pretty strong. When you think about the quarter overall, I'd focus on probably three numbers to start, which is one, our end of period loans should end just under $18.9 billion. The reason why I want to give that information is as people are trying to work through what the CECL provision build might look like, it's good to get that number dialed in a little bit. The second one is with the credit stats that came out a little better than expected. The quarter should come in a little better as well. So we're thinking the quarter's looking like around 6.5%, right around that. Then the third one is, we've had conversation on what the non-interest income trend would look like on a linked-quarter basis.

It came in a little better than we had expected in the second quarter, and part of that was due to some favorability we saw on some fee items, as well as some delays in terms of the RSA impacts. Today, obviously, one of the renewals we put out the press release on that. So that is going to step up the RSA payments in the third quarter. So you can think about that linked-quarter trend is half driven by seasonal increases in RSA payments. The other half will be some of the renewals that are going to come through. So think about that as about a $30 million step-up in RSA or decrease in linked-quarter non-interest income. But overall, beyond that, for the quarter, I think you should look for a pretty stable CECL reserve rate and feel pretty good about that.

And then obviously for the full-year guide, we will get into that during the third quarter earnings call. Then you want me to go on about the consumer and what we are seeing there on spend. Spend continues to be good. I mean, we saw a little bit of slowdown in July. Right now, spend still remains strong. You can see that pulling through in terms of our end-of-period loan growth being just over 6% for the month of August. September is benefiting a little bit from the delayed or later Labor Day this year. So that has helped. Remember, part of what my narrative on July was that Amazon Prime Day was pulled forward earlier. That got picked up in June, so that had impacted some of the comps by about 1% or 2%. So overall, again, consumer is resilient.

The spend patterns are looking good, particularly for us, as we have some still favorable comps that are pulling through at this point.

Yeah. When you look at non-interest income, and particularly that type of a line, you are netting a bunch of things together. So as you have top-line origination growth, you are pulling through more interchange income, you are pulling through more merchant discount fees, and those are obviously good fees. As well, you have got paper statement fees in there in non-interest income, as well as debt cancellation fees. So those are all accreting. Then the contras that are happening are the payments for customer rewards that you build and accrue for the customer rewards, the loyalty programs, and then partner sharing through the form of an RSA. And those, the RSAs in particular, as the program dynamics improve, meaning expanded profitability. So we have had some pricing changes that pulled through the past couple of years.

Those are now going to get shared back to the partners more so, particularly as you're going through these renewals. As you have higher origination growth that outpaces even loan growth, you're going to see that for those programs that are being compensated as a percent of credit sales pull through the RSA. Those dynamics, what I would look for is the step-up that we're going to see in the third quarter. If you take that as a percent of credit sales, that's just a thumb in the air type of a swag. It's something how you directionally look at things going forward is a good metric still to use as directional, with that perhaps slightly increasing over time.

For us, sorry. I think every portfolio out there is constructed a little differently. For us, we continue to see improvement in our credit profile. It's not really because we're tightening down credit. It's just we didn't loosen credit. A year or 2 ago, you didn't hear me talk about we're loosening credit. We've been sticking to our discipline. Every new vintage we put on, we're trying to get to be around that 6% loss rate. As the new vintages are pulling through with better credit risk dynamics, you're seeing that slow gradual improvement in our overall loss rate, coupled with the people who are most at risk have been charging off.